CMA, just as an outsider, having read the AKK thread for the last few days & getting somewhat egrossed in the discussion (argument) I thought I would contribute a response to this question.
Looking at the wording, the company has made not 1 but 2 qualifications in the statement "highly economic at $30+/bbl", namely:
1. highly economic rather than just economic
2. at $30+/bbl
What does this statement mean to me, average joe potential investor with some basic knowledge of the O&G game from previous investing experience?
Let's start with "economic". To me this term unequivocally has to and can should only be interpreted as profitable, and to be more specific, profitable at a level commensurate with the relevant industry/sector profitability performance benchmark. Profitable does not mean revenue earning, it means profitable in the financial definition - revenues less expenses. To be even more specific in terms of individual wells, I would not expect any one well to make the entire company profitable, obviously most O&G companies drill and produce many wells which combined should generate sufficient profit contribution (from each well) to more than cover overheads - at the relevant industry profit benchmark. This means each well should have a profitable NPV and above benchmark IRR.
That's just economic.
At "$30+/bbl". If the company says the well will be economic at "$30+/bbl" then I expect it to be economic (as per definition above) at exactly $30/bbl. Not $30.01, not $50, but $30.00. Because that's what the company is telling us they expect to be the case in their disclosure. Obviously, this means the minimum level at which the well will be economic, and the statement is intended to convey that anything higher will only improve profitability over and above the minimum benchmark.
Now "highly economic". If the company has chosen to add this qualification, then I expect there is a reason to do so, and distinguish from the case that it is just "economic". Clearly the company has chosen to add this qualification to convey that they expect the profitability to be higher than the minimm profitability benchmark. "Highly" is almost superlative in the tone/intent it conveys & so this leads to the impression not only that the profitability will be higher than the minimum benchmark, but significantly higher.
These are the impressions that this statement conveys to me. As an average joe O&G investor though, my experience tells me to discount anything which (a) is not proven, and (b) any unsubstantiable qualifications a company adds to its statements to make them sound more promising but without any specific statements that are legally indefensible.
Hence as an average joe investor, I would filter the statement down to "economic at $30/bbl" and then decide for myself whether any fact available allow me to believe this statement is credible, either by drilling results, nearology, past performance, past company statements of expectations vs results.
Cheers, Sharks.
